Preview of the Year 2012 – Part II: Beer & Cider

The second part of January's management briefing sees Spiros Malandrakis and Zsuzsa Szilagyi, alcoholics drinks analysts at Euromonitor International, turn their attention to beer and cider. What does 2012 look like for long drinks?

Micro-Breweries and Great Expectations

The story of the craft brewers’ rise into the drinks limelight, in the face of chronically sliding beer volumes in the West, has already been discussed and reviewed repeatedly by industry observers. 2012 will see all the big manufacturers frantically revamp their offerings and aggressively flirt with small regional players in order to gain a foothold in what seems to be the only segment that completely ignores post and pre-recessionary fears in mature beer markets.

Scent of a Woman

Female consumers have represented the alcoholic drinks industry’s Holy Grail pretty much since the day the first random fermentation took place in a sealed clay urn somewhere in Mesopotamia. However, as stagnation and consumer retrenchment continues to bite in the vast majority of mature markets, the fairer sex will become even more of a priority for manufacturers and retailers alike looking for new lifeblood for the industry.

While this trend will be more or less applicable to spirits and wine as well, beer is the category that stands to witness the most innovative product launches and marketing campaigns for the benefit of the ever elusive female drinking segment. Since beer sales still disproportionally target male consumers in what is becoming an increasingly stagnant and mature market, this is not merely a choice any more. It is a necessity.

Still primarily focusing on a very small number of markets, cider/perry should continue to navigate recent economic volatility on the back of a series of innovative product launches and a consistent push towards higher end varietals leveraging on heritage, provenance and tradition.

From the over-ice trend that revolutionised the category in 2005, to the fruit based concoctions that followed, to offerings that highlight local production or food pairing suggestions, cider/perry will retain an enviable trajectory relative to the rest of the alcoholic drinks industry. This is especially impressive given the fact that the vast majority of sales continue to be derived from largely mature markets.

Beer

Companies to Watch

Since mergers and acquisitions marked the last decade, there are few acquisition targets left for beer companies. In 2011 major brewers continued to consolidate their global positions, SABMiller increased its exposure to high-margin markets with the acquisition of Australian Foster’s Group, while Heineken further consolidated its position in Middle East and Africa with the purchase of breweries in Nigeria and Ethiopia. M&A activity however, is expected to be limited in 2012, brewers might bid for smaller third- or fourth-tier players to gain access to consolidated markets or enhance their distribution, but most players are likely to focus on organic growth.

As China is forecast to continue to lead global beer volume growth, Chinese players are expected to continue their dynamic growth, and they are worth watching, as in terms of volume, they might overtake international players in the global ranking in the coming years. Currently fifth- ranked China Resources is already threatening Carlsberg’s position, which is struggling with falling beer volumes in its main Russian market. In 2011, Tsingtao Brewery, the second largest brewer in China, has announced that it is setting up a new brewery in Thailand, and the company is committed to expanding its presence globally, however its volumes are still concentrated in its domestic market, and as beer volumes in China are expected to continue to see robust growth, Chinese players are likely focus on capitalising on this instead of investing in international expansion.

Kirin Holdings is also likely to get more attention, following its latest entry in Brazil with the acquisition of Schincariol Participações e Representações SA. Many analysts believe that the Japanese brewer overpaid for the Brazilian company, which has weak operational efficiency and limited distribution in the country, thus Kirin will have to invest heavily to compete with the country’s dominant player, A-B InBev.

Major brewers are expected to continue to focus on emerging markets; A-B InBev is likely to continue to push its brands in China, while SABMiller and Heineken can continue to take advantage of their increasing footprint in Middle East and Africa. Molson Coors and Diageo are also trying to catch up with competitors by increasing their presence in emerging markets. In 2011 Molson has taken controlling stake in Cobra India, while Diageo improved its position in the Middle East and Africa with further investments in Kenya and Tanzania, but they still have a lot to do to balance their geographic coverage.

Although mature beer markets in North America and Western Europe are expected to remain sluggish, with their higher margins they remain important in value generation. As consumer behaviour changed in many markets with a growing interest in craft beers, brewers are trying to tap into this developing category. A-B InBev acquired a Chicago-based craft brewer, Goose Island, and Molson Coors took over Sharp Brewery in the UK. Cider/perry also has a similar appeal to craft beer, and has shown growing popularity, thus it can offer growth opportunity for companies. Heineken leads the category, and competes with many small local players, but competition is expected to intensify as A-B InBev has launched its first cider brand, Stella Artois Cidre in the UK, and is likely to try to take the brand to global scale. Since the cider/perry market is quite fragmented, brewers might look for acquisition targets in this category to further strengthen their global positions.

Brands to Watch

Budweiser is a brand that is worth continuing to watch, since A-B InBev is pushing the brand in high-growth markets, such as Brazil and China to offset declines in the brand’s main US market. Carlsberg can also be interesting, since the company has repositioned its namesake brand, emphasising its premium quality. Premiumisation remains a major trend, and brewers are expected to continue to try to take advantage of the premium growth with innovations. In 2011, Molson Coors has launched Carling Chrome a premium variant of Carling in the UK, while A-B InBev is extending its portfolio with Bud Light Platinum in the US. Heineken will continue to focus on its premium Heineken brand, and support it with extensive marketing, but the company is also expected to increase investment in its recently acquired Mexican brands in many of its key markets to compete against Grupo Modelo’s Corona Extra.

Click here for part one and here for part three of this management briefing. The contents page can be found here.

Using Pete Brown's analogy - more of which follows - the craft brewers of this world are the Gorky's Zygotic Mynci to Anheuser-Busch InBev's U2, or the Ramona Falls to Carlsberg's Coldplay. Confused? ...